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Therese Nilsson. Photo.

Therese Nilsson

Professor

Therese Nilsson. Photo.

When more poor means less poverty: On income inequality and purchasing power

Author

  • Therese Nilsson
  • Andreas Bergh

Summary, in English

We show theoretically that the poor can benefit from price changes induced by higher income inequality. As the number of poor increases, the market for products aimed toward the poor grows, and such products become more profitable. As a result, there are circumstances where an increase in income inequality associates with higher purchasing power of the poor. Using cross-country data on the price of one kilogram of rice and the price of a Big Mac hamburger, we confirm a negative association between income inequality and the price of inferior goods, robust to the inclusion of a large set of control variables. Results are also robust to a first difference specification and to a two-stage instrumental variables approach. Examining economic well-being, it is thus important to analyze not only the incomes of households, but also the prices of the products and services that they buy.

Department/s

  • Department of Economics
  • Centre for Economic Demography

Publishing year

2014

Language

English

Pages

232-246

Publication/Series

Southern Economic Journal

Volume

81

Issue

1

Document type

Journal article

Publisher

Southern Economic Association

Topic

  • Economics
  • Economic History

Status

Published

ISBN/ISSN/Other

  • ISSN: 0038-4038